2014 Ruling 2013-0514581R3 - XXXXXXXXXX assistance grant

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether XXXXXXXXXX assistance grant given due to XXXXXXXXXX, is included under 5(1), 6(1)(a) or 56(1)(u).

Position: No

Reasons: See below

XXXXXXXXXX
2013-051458

XXXXXXXXXX, 2014

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-named taxpayers. We also acknowledge the additional information provided in your letters of XXXXXXXXXX.

We understand that, to the best of your knowledge and that of the taxpayers, none of the issues involved in this ruling is:

(i) in an earlier return of the taxpayers or related persons;
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or related persons;
(iii) under objection by the taxpayers or related persons;
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate to the taxpayers or related persons.

This letter is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter ("Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Definitions

In this letter, the following terms have the meanings specified here:

"Associate" means an employee of any of the Corporate Entities;

"Canadian Associate" means an employee of Canco;

"Canco" means XXXXXXXXXX;

"Corporate Entities" means Canco, USCo Parent and USCo Parent's direct and indirect wholly-owned subsidiaries;

"CRA" means the Canada Revenue Agency;

"Fund" means XXXXXXXXXX;

"IRC" means the United States Internal Revenue Code;

"IRS" means the United States Internal Revenue Service;

"Non-Canadian Associate" means an Associate other than a Canadian Associate;

"Program" means the administrative process which facilitates the issuing of grants by the Fund to Associates;

"Regulations" means the Income Tax Regulations (Canada) as amended to the date of this letter;

"U.S." means the United States of America;

"USCo" means XXXXXXXXXX;

"USCo Parent" means XXXXXXXXXX; and

"USD" means U.S. dollars.

Unless otherwise indicated, all dollar amounts in this letter are in Canadian dollars.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Facts

1. The Fund was incorporated on XXXXXXXXXX, as a public benefit corporation under the laws of the State of XXXXXXXXXX.

2. The Fund is recognized by the IRS as a tax-exempt public charity under section 501(c)(3) of the IRC.

3. USCo Parent is a U.S. resident corporation. Its shares are publicly listed on the XXXXXXXXXX stock exchange. USCo is a U.S. resident limited liability company. USCo is a wholly-owned subsidiary of USCo Parent.

4. Canco is a Canadian resident corporation. It is an indirect wholly-owned subsidiary of USCo Parent. XXXXXXXXXX. Canco deals with the XXXXXXXXXX Tax Services Office and files its tax return at the XXXXXXXXXX Tax Centre.

5. The initial contributor to the Fund was USCo. Each of USCo and Canco is not, and has never been, involved in the day-to-day operations of the Fund.

6. The Board of Directors of the Fund are all Non-Canadian Associates.

7. The only purpose of the Fund is XXXXXXXXXX.
XXXXXXXXXX. A grant from the Fund is a one-time lump-sum payment to a qualifying Associate in respect of one or more of the above events. In certain circumstances, the Fund may, in addition, match funds raised by an Associate's co-workers in an amount up to USD $XXXXXXXXXX if the Associate XXXXXXXXXX an eligible event or a similar event as described in paragraph 13 below.

8. XXXXXXXXXX.

9. An active Associate is defined as an Associate of USCo, or certain affiliated companies of USCo who is currently employed in a full-time or part-time position and has worked in the last XXXXXXXXXX days or is currently on an approved leave of absence and has been employed for XXXXXXXXXX days. Currently, approximately XXXXXXXXXX Non-Canadian Associates are eligible for assistance from the Fund. There are approximately XXXXXXXXXX Canadian Associates who would be eligible to receive assistance from the Fund.

10. The Fund does not maintain any employment information with respect to potential grant recipients nor with respect to any Associate. All decisions on grant assistance made by the Fund are made independently of all Corporate Entities.

11. The Fund receives a majority of its contributions from Non-Canadian Associates. Contributions made by Non-Canadian Associates are tax deductible in the U.S. due to the Fund's charitable status in the U.S. To the date of this ruling, no Canadian Associates have contributed money to the Fund.

12. The Fund's Board of Directors is authorized to establish operational guidelines for the Fund. These guidelines set forth the criteria that a grant application must meet in order for an applicant to be eligible for a grant. The application form requests detailed information about the applicant including information concerning the reasons for XXXXXXXXXX assistance, the type of assistance required and other relevant information. New members appointed to the Fund's Board of Directors are selected on an informal basis by the existing members of the Fund's Board of Directors. Each member of the Fund's Board of Directors is a Non-Canadian Associate.

13. In order to receive a grant from the Fund, an Associate must complete an application requesting assistance and submit the application to an administrator for purposes of reviewing eligibility and merit. Decisions on grant requests for amounts less than USD $XXXXXXXXXX are made by the administrator. Decisions on grant requests for amounts from USD $XXXXXXXXXX up to USD $XXXXXXXXXX (or USD $XXXXXXXXXX for XXXXXXXXXX expenses) are made by the Fund's Steering Committee. Decisions on grant requests for amounts greater than USD $XXXXXXXXXX (or USD $XXXXXXXXXX for XXXXXXXXXX expenses) are made by the Fund's Board of Directors. In exceptional circumstances, the Fund's Board of Directors may make a grant for an event that is not, but is similar to, an eligible event described in paragraph 7 above or that does not otherwise technically meet the eligibility requirements described in paragraphs 7 to 9 above (but under all circumstances the purpose of the grant would be XXXXXXXXXX assistance XXXXXXXXXX). The Fund's Board of Directors may also in exceptional circumstances make a grant where a formal application has not been completed where the grant is required by an Associate faster than the time that it would take for the formal application process to be completed. To date, all grants made by the Fund have followed the formal application process outlined above. The Fund's Steering Committee is comprised of a minimum of XXXXXXXXXX and a maximum of XXXXXXXXXX members. Each member of the Steering Committee is an Associate of a member of the Corporate Entities who has worked for such Corporate Entity for at least XXXXXXXXXX years.

14. Other than as an initial qualifier, the status of an Associate is not a relevant factor in the selection process, or in the amount of assistance provided. For greater certainty, an Associate's length of service and performance reviews are not considered in determining whether an amount is granted, or the quantum of that grant. In determining whether an amount is granted to an Associate or the quantum of that grant, neither the Steering Committee nor the Board of Directors knows the identity or location of the particular Associate. In determining whether an amount is granted to an Associate or the quantum of that grant, while the administrator has access to an Associate's records to determine whether the Associate is an active Associate, the administrator does not have access to personnel files or other employment-related materials.

15. Based on historical information, from XXXXXXXXXX, to XXXXXXXXXX, the average grant to a Non-Canadian Associate was approximately USD $XXXXXXXXXX. To date, no grants have been made by the Fund to a Canadian Associate.

16. The Fund is a public charity which has received exemption from U.S. federal income tax under IRC Section 501(c)(3). Payments received from a public charity in the course of its authorized program services are considered to be gifts to the recipient(s), and are excluded from gross income for U.S. income tax purposes under IRC Section 102.
Proposed Transactions

17. The Fund proposes to amend the Program to provide grant assistance to Canadian Associates who XXXXXXXXXX.
In exceptional circumstances, the Fund's Board of Directors may make a grant for an event that is not, but is similar to, an eligible event described above (but under all circumstances the purpose of the grant would be XXXXXXXXXX). In certain circumstances, the Fund may, in addition, match funds raised by a Canadian Associate's co-workers if the Canadian Associate XXXXXXXXXX such an eligible or similar event described above. The decision-making process with respect to determining the amount, if any, of the grant assistance, and the payment of the grants will be done in the same manner, and using the same guidelines, as outlined above. The approval process outlined in paragraphs 13 and 14 will be the same for Canadian Associates as it is for Non-Canadian Associates.

18. The maximum amount available to a Canadian Associate per eligible event would typically be $XXXXXXXXXX (or $XXXXXXXXXX for XXXXXXXXXX expenses), excluding any amount paid by the Fund to match gifts made by the Canadian Associates' co-workers. Grants may be given to Canadian Associates in amounts greater than $XXXXXXXXXX (or $XXXXXXXXXX for XXXXXXXXXX expenses) on a case by case basis, as determined by the Board of Directors. For greater certainty, an Associate would be able to apply for multiple grants related to the same situation as long as the Associate XXXXXXXXXX different eligible events as described in paragraph 17 above. In no event will the grant from the Fund exceed the amount necessary to address the Associate's XXXXXXXXXX. The maximum amount available to a Canadian Associate to match gifts made by the Canadian Associate's co-workers would be $XXXXXXXXXX.

Purpose of the Proposed Transaction

19. The purpose of the grant assistance proposed to be made by the Fund is to enable the Fund to fulfill its charitable purposes. The articles of formation of the Fund do not contain any geographical limitations, and thus, the Fund may make grants to recipients in the U.S., Canada, and elsewhere.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, purpose of the proposed transactions, and there are no other transactions that may be relevant to the rulings given, our rulings are as follows:

A. Grant assistance provided to Canadian Associates by the Fund in the manner outlined in paragraphs 17 and 18 will not be considered employment income for the Associates, and in particular will not be included in their income pursuant to subsection 5(1) or paragraph 6(1)(a) of the Act.

B. Grant assistance provided to Canadian Associates by the Fund in the manner outlined in paragraphs 17 and 18 will not be required to be included in the income of Canadian Associates under paragraph 56(1)(u) of the Act.

C. Neither the Fund nor a member of the Corporate Entities will be required to withhold income tax from the grant assistance paid, nor will the Fund or a member of the Corporate Entities be required to file an information return, or report an amount on an information return filed, in respect of the grant assistance pursuant to:

• subsection 200(1) of the Regulations as it relates to paragraph 153(1)(a) of the Act; or
• paragraph 200(2)(g) of the Regulations as it relates to paragraph 6(1)(a) of the Act; or
• subsection 233(1) of the Regulations.

The above rulings are based on the Act, Regulations, CRA interpretations, and policies in their present form. The rulings do not take into account any proposed amendment to the Act, Regulations or changes in CRA interpretation or policy, which, if enacted, could have an effect on the rulings provided, subject to and in accordance with the general policies, limitations, and qualifications set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. The rulings are binding on the CRA provided that the proposed amendments to the Program are implemented within 6 months of the date of this letter.

Caveats

Except as expressly stated, this advance income tax ruling does not imply that the CRA has confirmed, reviewed, or made any determination in respect of any tax consequences relating to the facts, the proposed transactions, or any transaction or event taking place either prior, or subsequent, to the implementation of the proposed transactions, whether described in this letter or not, other than those specifically described in the rulings above. In particular,

• the CRA expresses no opinion with respect to the tax consequences of grant assistance provided to an Associate who is not dealing at arm's length with the Fund or any of the Corporate Entities for purposes of the Act.

An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.

Yours truly,

XXXXXXXXXX
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate